Textiles and Apparel MARKET & OPPORTUNITIES

Textiles and Apparel MARKET & OPPORTUNITIES

CONTENTS

Introduction 2

Indian Textile Industry 3

Conclusion and Key Take-aways 14

A report by KPMG for IBEF  MARKET & OPPORTUNITIES

Introduction

The global textile and apparel industry is worth over Position of India in the global arena US$ 4,395 billion, with clothing accounting for 60 per cent of the market and apparel, the balance 40 per cent. With China leading the global textile trade, India ranks Global trade in this industry is now at US$ 350 billion and second with 8 per cent of the total. India contributes to is expected to be in the range of US$ 600 billion by 2010 nearly 4 per cent of total textile exports and 3 per cent of and US$ 800 billion by 2014. The bulk of the increase is total apparel exports in the world. expected to be from clothing, which is projected to grow to India has the highest number of looms- 1.8 million nearly US$ 400 billion by 2010. shuttle looms (at 45 per cent of global capacity) and 200,000 USA and European Union (EU) together are the major shuttle-less looms (at 3 per cent of global capacity) and consumers of textiles. They accounted for nearly 64 per cent 3.9 million hand looms (at 85 per cent of global capacity). of clothing and 39 per cent of textile consumption in 2004. India has the second highest number of spindles in the Among other countries, Japan, Australia and New Zealand world with 40 million spindles (at 23 per cent of global are significant consumers of Indian textiles. capacity). India ranks first in production (at 1,900 million kilograms), second in production (at 15 million kilograms of raw silk), second in exports (at 2,000 million kilograms), second in cotton production (at 2,700 million kilograms of cotton fibre), fifth in man-made fibres (at 2,000 million kilograms) and ranks eighth in the total production of (at 51 million kilograms) in the world. TEXTILES AND APPAREL 

Indian Textile Industry

The textile and apparel industry contributes significantly The industry has been growing to the Indian economy. It accounts for 14 per cent of total across segments industry output and nearly 5 per cent of Gross Domestic Product (GDP). It provides direct employment to 38 Production of textile yarn witnessed a compounded annual million people and is the largest foreign exchange earner, growth rate (CAGR) of 3.6 per cent between 1996 and 2006. contributing nearly 20 per cent to India’s total exports. Finished cloth has witnessed a higher CAGR of 4.1 per cent In the last three years, the sector has attracted a total during the same period. This growth outperforms the global investment of US$ 5,770 million. The cumulative Foreign production, which experienced a CAGR of 2.25 per cent Direct Investment (FDI) made in this sector between (both yarn and cloth). Most of this growth is contributed by 1991 and 2007 has been US$ 575 million, representing non-cotton yarn, which grew at 6 per cent CAGR in 2006. 1.22 per cent of the total FDI attracted by the country. Textile exports have witnessed a CAGR of 11.8 per cent in 1996-2006. Man-made textiles have shown maximum growth and witnessed the highest CAGR at 14.5 per cent followed by Ready-Made Garments (RMG) at 12.4 per cent. USA and EU are the major markets contributing nearly 80 per cent to textile exports. The Textile Value Chain Sourcing of raw materials, Weaving/ Apparel Distribution/ Process Spinning Processing ginning and Knitting Making Retailing extrusion of fibre

Weaving/ Apparel Ginning and Spinning Processing Outlets/ Process Kniting design & cleaning machines Mills Units Stores Units making

Man-made fibre Processed Output cotton, jute, silk, Yarn Fabric Garment Fabric wool Hand looms 1,135 small 3.9 million Units scale: 1,564 2,100 7,7000 units Power-looms large scale 1.8 million

Fairly large, well Large Weak and Some large Fragmented Fairly Remarks organised and capacity unorganised players Consolidating organised financially strong Fragmented  MARKET & OPPORTUNITIES

Export of textile is projected to grow at 22 per Silk cent between 2007 and 2012 and expected to reach US$ 55 billion by 2012. India is the second largest producer of silk in the world, contributing 18 per cent to the total global production. It has the distinction of producing all the four varieties of silk The Indian Textile industry spans (Mulberry, Eri, Tasar and Muga). The total silk production all activities across the value chain in 2004-2005 stood at 44,322 million square metres. Silk exports earned US$ 413.64 million in 2004-05. Raw Materials Man-made fibres The major raw materials for the textile and apparel industry include cotton, jute, silk, wool and man-made fibre. Man-made fibres consist of synthetic fibres such as filament yarn, polyester staple fibre, acrylic staple fibre, Cotton filament yarn and fibre/yarn such as viscose fibre/yarn. India is a leading producer of viscose filament In 2005-06, India was the second largest producer of cotton yarn. The total production of man-made fibres stood at (4.15 metric tonnes) in the world, accounting for 16.75 per nearly 1 billion kilograms in 2006-07. cent of the global production. Cotton is the predominant While there is abundant availability of raw materials, fabric used in the Indian textile industry, accounting for the Indian textile and apparel industry has been suffering nearly 60 per cent of production. The average yield of from low productivity due to low farm yields affecting cotton per hectare in India is about 400 kilograms which is cotton production, accentuated costs incurred in considered low. Cotton exports to major countries stood at additional processes to clean cotton fibres, poor (old US$ 3,203 million in 2005-06. and outdated) ginning equipment and high defect rates in production. Wool Spinning The wool industry is small in size and scattered across the country, with 77 per cent of the production coming from The spinning sector in India is completely (100 per cent) northern states. This sector consists of both organised organised and is globally competitive in terms of variety, players (composite mills, combing units, worsted and process and production quantity. India has about 40 million non-worsted spinning units, knitwear and woven garments spindles (23 per cent of the world). Independent spinning units) and de-centralised units (hosiery and knitting mills account for about 75 per cent of total capacity and units, power-loom units, hand-knotted carpets, druggets 92 per cent of the total production. These mills are chiefly and namdah units, independent dyeing and processing located in North India. houses). The total production of wool in 2006 was about The spinning process is technologically intensive, the 55 million kilograms. output is affected by the quality of fibre and the cleaning process of raw materials. Jute Weaving/Knitting The jute industry is labour intensive. Production of jute goods in India in 2005-06 was 1.582 metric tonnes. Jute India’s weaving/knitting sector is highly unorganised, with exports for the year 2005-06 stood at US$ 272 million. the organised sector contributing to just 5 per cent of the About 75 per cent of the total capacity of the jute industry total production. There are about 3.9 million hand looms is being utilised at present. and 1.8 million power-looms in India. Hand looms cater to both ends of the value chain, i.e. mass consumption, as well as specialty use. Hand looms are located mostly in rural areas such as TEXTILES AND APPAREL 

Pochampally in Andhra Pradesh and Kanchipuram in Opportunities for investing in the Tamil Nadu. Indian Textile Sector Demand for standardisation in apparel segments such as sarees has given a significant impetus to power- Attractiveness of the industry looms, which contribute to 62 per cent of the total cloth production. Knitting units are successful in export channels. Favourable factor conditions Some of the prominent weaving/knitting clusters include Tirupur in Tamil Nadu and Ludhiana in Punjab. Favourable factor conditions provide India with a strong This is the weakest link in the supply chain suffering from comparative advantage over other competing countries problems such as high power tariffs and low investments in the textile industry. Specifically, India has the following in technology. strengths:

Cost Competitiveness Processing Yarn: US$ per kg of yarn Indian processing sector is largely decentralised with Fabric: US$ per yard of fabric low levels of automation, marked by hand/independent Open-ended Yarn processing units. This has lead to inconsistency in production and lack of conformance to quality. About 2,300 South Korea 2.35 processors are operating throughout India, including about China 2.51

2,100 independent units and 200 units that are integrated Brazil 2.31 with spinning, weaving or knitting units. India 2.17

Apparel Making 0 0.5 1 1.5 2 2.5 3 US$ The apparel sector has over 25,000 domestic manufacturers, Open-ended Woven Fabric 48,000 fabricators and around 4,000 manufacturers/ exporters. Over 80 per cent of the total units are small South Korea 0.70 operations (less than 20 machines) and are either China 0.65 proprietorship or partnership firms. Access to a variety of raw materials and flexibility of Brazil 0.60 supply chain enables apparel manufacturers to mix and India 0.61 match various constituents and come up with innovative 0 0.5 1 1.5 2 2.5 3 designs. However, this advantage has not been leveraged US$ effectively. Apparel exports in 2006-07 stood at US$ 10 billion, with a year on year growth of 8.4 per cent Open-ended Knitted Fabric An important sub-segment of the apparel segment South Korea 0.06 is the Ready-Made Garments segment (RMG). This is the largest export segment contributing to 45 per cent of the China 0.04 total textile exports. RMG exports are expected to touch Brazil 0.07 US$ 14.5 billion with a CAGR at 18-20 per cent. India 0.06

0 0.5 1 1.5 2 2.5 3 US$  MARKET & OPPORTUNITIES

Ring Yarn Textured Knitted Fabric

South Korea 2.68 South Korea 0.18

China 2.76 China 0.14

Brazil 2.61 Brazil 0.20

India 2.45 India 0.21

0 0.5 1 1.5 2 2.5 3 0 0.5 1 1.5 2 2.5 3 US$ US$

Ring Woven Fabric • Abundant and low price supply of raw-materials: As can

South Korea 0.75 be seen from the cost competitiveness chart, India is more cost-competitive than China and Brazil across a range of China 0.69 materials. India also has a diverse supply of raw materials, Brazil 0.65 23 varieties of cotton and all four varieties of silk. This India 0.66 inherent strength in availability of raw materials insulates the market from any supply-side shocks. 0 0.5 1 1.5 2 2.5 3 US$ • Availability of low cost skilled labour: Labour costs in India Ring Knitted Fabric continue to be significantly low as compared to other countries. This factor provides a significant advantage South Korea 1.22 to the textile industry in India, in terms of increased

China 1.21 productivity at lower costs.

Brazil 1.21 Labour Cost

India 1.12 USA 15.13

0 0.5 1 1.5 2 2.5 3 Hongkong 6.15 US$ South Korea 5.73

Textured Yarn Coastal China 0.69 India 0.57 South Korea 1.68 Pakistan 0.34 China 1.40 0 5 10 15 20 Brazil 1.90 US$ per hour India 2.06

0 0.5 1 1.5 2 2.5 3 Favourable domestic market US$

Textured Woven Fabric With increase in disposable income levels, consumer awareness and propensity to spend and the demographic South Korea 0.55 trends in India are changing significantly. China 0.51 According to NCAER data, the consuming class, with an annual income of US$ 980 or above, is growing Brazil 0.55 continuously and is expected to constitute over 80 per cent India 0.59 of the population by 2009-10. There is a significant change

0 0.5 1 1.5 2 2.5 3 in the consumer mindset which has led to a growing trend US$ of increased consumption of personal care and lifestyle TEXTILES AND APPAREL 

products, as well as branded products. These trends offer boost to the textile sector. These include schemes for great growth opportunities to companies across various foreign investment promotion to attract FDI in textiles sectors, including textiles. clothing and machinery; brand promotion on Public- In response to this growing demand for consumption a Private Partnership (PPP)) approach to develop global revolution is taking place in India’s retail sector. Organised acceptability of Indian apparel brands; trade facilitation retail is playing a key role in structuring the Indian domestic centres for Indian image branding; fashion hubs for market, reinforced by the rapid rise of supermarkets, malls, creation of permanent market place for the benefit of theme stores and franchises across urban India. Indian fashion industry; common compliance code to India thus presents a large and vibrant market for textiles encourage acceptability among apparel buyers and and apparels, with a potential for sustained growth. training centres for human resource development on PPP mode Government initiatives to promote investment The fragmented structure of the industry provides the advantage of a large pool of skilled workmen in different It is estimated that this industry will require US$ 22 billion areas of and also gives scope for of new capital investments over the next five years. entry of organised integrated textile manufacturers. Small With a view to raise India’s share in the global textile scale units in different sectors can also be leveraged as a trade to 10 per cent by 2015 (from the current 3 per cent), the supply base, for sourcing materials at low cost. Ministry of Textiles has proposed 50 new textile parks. Out of the 50 proposed parks, 30 have been already sanctioned by the Government (with a cost of US$ 710 million). Set up Attractive Segments for Investment under the Scheme for Integrated Textile Parks (SITP), this initiative will not only make the industry cost competitive, The different segments within India’s textile and apparel but also enhance the manufacturing capacity of the sector. industry have been assessed along two parameters- the To promote the industry’s growth, the Government has growth opportunity offered, based on market trends also taken various support initiatives in areas such as: and gaps in current capabilities and the supportive • Product development and design: Encouraging institutes environment, based on Government policy initiatives to such as NIFT (National Institute of Fashion Technology) and Apparel Training and Design Centres (ATDCs). There

are several colleges, including the Indian Institutes of High Sourcing Technology and National Institutes of Technology, that offer courses in Textile Engineering. Garmenting Weaving • Technology Upgradiation: The Government of India established the Technology Upgradation Fund Scheme (TUFS), to enable firms to access subsidised low-interest Processing loans for technology upgradation. Under this scheme, the Spinning Government reimburses 5 per cent of the interest rates charged by the banks and financial institutions, thereby

ensuring credit availability for upgradation of technology Growth at global rates. In a further bid to bolster the growth, the Opportunity Government is also expected to increase the TUF from US$ 124 million in 2006-07 to US$ 211 million in 2007-08 • Revival of sick units: Revival plans of the mills run by National Textiles Corporation (NTC). Already, US$ 2.21 million worth of machinery has been ordered for the upgradation and modernisation of 18 textile mills

• Others: The Government of India has also included new Low Low Policy attractiveness and High schemes in the Annual Plan for 2007-08 to provide a Government incentives  MARKET & OPPORTUNITIES

support the segment. Based on these parameters, the In these circumstances, investments in modern weaving following segments appear attractive, and are discussed in / knitting units in India could yield benefits. The Government the following sections. has proposed credit-linked capital subsidy for procurement of modern power-looms. Sourcing Processing Sourcing of raw materials from India could be an attractive option for players looking to enter the Indian textile market. There is an increasing need to adapt prints to the export The cost of raw materials in India is amongst the lowest market. Also, companies need to invest in technology like in the world. However, there is room for improving the natural wash and laser wash to bring Indian garments at par quality of cotton. The quality of the fabric can also be with quality of garments in the export market. significantly improved, by investing in modern ginning The Government provides a capital-linked subsidy of equipment. There is a growing need for new fabrics, such 10 per cent in addition to 5 per cent reimbursement on the as, poly-satin, viscose, etc. the processes of which are interest paid for loans taken by processing units. technologically intensive. While some global buyers are leveraging India’s cost Garmenting advantage by directly collaborating with Indian suppliers to source material, the Government has focused on supporting The RMG sub-segment is growing at a rapid pace, with the industry, to improve quality and acquire technology. RMG exports expected to touch US$ 55 billion by 2010. This • The Ministry of Textiles encourages firms to improve segment also needs injection of new technology, especially quality by introducing various quality certifications in bringing out new and contemporary designs quickly to like ISO the market. • The Ministry has also incorporated a Technology Upgradation Fund to encourage investment in technology Successful arrangements for investing in this sector Weaving Different business models have been tried out by players Weaving/knitting units in India are weak and small in size. investing in the Indian textile sector, to leverage the existing Many are faced with debt problems and require capital capabilities. Two such models that could be options for new investment. At the same time, increased demand for fabric investors, are discussed below: from home and industrial textiles will require significant investments in modern processing machinery.

Weaving Common Cutting, Sourcing Clusters Processing Stitching and Facility Garmenting

Centralised - Common processing facility for Branding the yarn/ Sourcing a set of clusters fabric/prints with the - Leverage Govt. schemes such as SITP, SEZ’s and TUFs apparel in case of especially in locations/states where there are special high-value products incentives for setting up processing/weaving units

Producer Model: The MNC invests in processing and weaving segments of the Value Chain

Source: KPMG Analysis TEXTILES AND APPAREL 

Producer model of high-value garments, where the quality of fabric makes considerable difference. The MNC invests in processing and weaving segments of the value chain. Key advantages of this business model

The operating model This model best exploits the various incentives in the processing and weaving segments that are provided The MNC invests in the processing and weaving segments by the Government. It improves bargaining power with of the textile value chain. This is done by acquiring an yarn suppliers. equity stake in the processing and weaving units. Since the Since the weaving and processing segment is highly processing segment is fraught with problems related to fragmented, this business model will bring significant quality conformance across various units, the MNC might organisation in the sector. set up a common processing facility for a group of weaving This model is being successfully followed in India, by clusters. Orders are allocated to these units based on the Zeiglertex (Also see case study on Zeiglertex, included later manufacturing competence and capacity utilisation. There in this document). should be a centralised sourcing system of raw materials to leverage advantages of large orders. This centralisation also The Apparel-manufacturer model helps effective order tracking. The MNC might also invest in a captive power unit for cost containment. Garment manufacturing model: The MNC invests in The MNC should also strategise its production with the designing and manufacturing of garments retail demand, as many retailers usually communicate their buying plans 9-10 months in advance. The MNC might also promote the fabric with the final product-apparel in case

Cutting, Stitching, Sourcing and Weaving and Garmenting and Spinning Processing Retailing

Can have a sourcing/buying Provides technology support to - Leverages brand and superior liaison these units for procuring best-in- design technology class equipment - May target both domestic as well as export markets

Garment manufacturing model: The MNC invests in designing and manufacturing of garments

Source: KPMG Analysis 10 MARKET & OPPORTUNITIES

Features of the operating model in India. For instance, on an average, Chinese firms have 1.5 times higher spinning capacity than those of India. The MNC invests in a cutting/stitching and garmenting Scale influences cost structure as it gives an opportunity unit. The output is sold under the MNC brand. It caters both to exploit economies of scale and an ability to attract to export as well as domestic markets. This investment customers with large orders. Firms must have managerial could be through a JV with an indian player, or as a stand- capabilities to design appropriate supply chains to manage alone unit. this scale and also the workforce, especially in the case of The MNC offers technology support to the weaving garment manufacturing, which is order driven and hence and processing clust ers to import best-in-class equipment requires full-time workforce even in lean seasons. from other countries to enhance the quality of fabric. It also agrees with the clusters on adherence to stringent quality Well integrated and lean supply chains: norms Shorter cycle and delivery times For better order management and to avoid supply- side shocks, the MNC announces its buying plans well in The Indian textile industry has a long and complex supply advance. chain. This affects not only the cycle times, but also the delivery times. The average cycle time in the Indian textile Key Benefits industry is about 45-50 days, which sometimes extends to 80 days. The mean delay in the supply chain from procurement This is the most attractive segment for exports with RMG of raw materials and to export of finished goods is 15.5 contributing to 40 per cent of total exports. days. Shelf life of fashion driven products is very short Lifestyle brands from MNCs abroad are fast gaining (approximately 45days), hence such delays are untenable. prominence in the Indian market. Currently, they can These delays not only affect time-to-market, but also Work- reach only the premium segment, due to high pricing of in-Progress (WIP), variability of supply chain and hence the the apparels. Using a cost-effective production strategy cost. Therefore strong deployment of industrial engineering as suggested the MNC can successfully bring down the with particular emphasis on cellular manufacturing and JIT cost of the apparels enabling it to target other customer- systems, in order to establish lean supply chains is extremely segments of the domestic market This model is being crucial for manufacturers. Presence across the value chain, followed in India by Benetton. While MNC’s following the vertical integration and investment in captive power units above business models are successful, it is important to helps in effective demand assessment, resulting in greater note that integration across the value chain will provide a control over the supply chain and cost reduction. key advantage to this sector as discussed earlier. Customer-centricity in products and brand competitiveness Critical Success factors for manufacturers in the Textiles A review of products imported by the US from China reveals and Apparel Industry that the top three products in terms of percentage increase in imports belong to the synthetic products category. While India provides various opportunities such as However, Indian products don’t feature in this list. Synthetic abundant availability of raw materials, low cost of labour products contribute to nearly 50 per cent of the global and favourable government policies, many critical factors trade and India lacks a prominent position in this segment. contribute to a manufacturer’s success, both in domestic as This is also true of other segments such as nano-textiles, well as international markets. These factors include: home textiles and industrial textiles. This shows that a clear understanding of the demand in world markets and hence Scale developing product portfolios to cater to that demand is crucial for increasing market share. Indian firms are typically smaller in scale when compared to Products with higher fashion content ,such as their Chinese counterparts and there are fewer larger firms embroidery and sequins have gained greater response in TEXTILES AND APPAREL 11

the EU and US markets. India has significant strength in contribute to 27 per cent of the capital investment and value addition and fashion content. Manufacturers must 15 per cent of the exports from this state. develop the ability to leverage these strengths to gain It has abundant availability of raw materials, especially competitiveness in the export markets. cotton and wool, as well as a large number of garment The Indian consumer’s expenditure on branded apparel manufacturing units. It offers easy access to key buying is increasing as indicated by the growth of branded centres such as Delhi and Gurgaon. The state also has a large apparel at 25 per cent. To match up to this growing market, labour pool with low labour costs at US$ 8 per month. manufacturers must make significant investments in brand creation and promotion. Specific Incentives

Collaboration with foreign counterparts Fiscal Incentives

India is slowly emerging as a good out-sourcing destination Haryana Investment Promotion Board develops a for large retailers in US and EU markets. To take advantage customised set of incentives for projects in the textile sector of these trends, Indian manufacturers can enter into of value above US$ 0.14 million. collaborative arrangements with foreign players, thereby gaining entry into international production, sourcing and Non-fiscal Incentives marketing networks. This will not only give them access to international markets, but also provide them a scope The Haryana Government is actively involved in developing for gaining technical and marketing expertise from their conducive ecosystems for the textile sector. It has set up a foreign partners. footwear and a leather garments park in Karnal, a textile cluster in Panipat, which is one of the largest textile clusters in India and is proactive in setting up textile-promoting Attractive states and SEZ’s and FEZ’s (Free Enterprise Zones). state specific incentives

Several states in India offer an attractive investment climate Andhra Pradesh for players looking to enter the textiles and apparel market. Apart from the specific incentives and support offered Factor conditions by the state governments, factors such as infrastructure availability, manpower availability and general standard The state of Andhra Pradesh is one of the major exporters of of living are also parameters that affect a company’s textiles in the country at US$ 90 million in 2003-04. It has an investment decision. An assessement of different states in abundant supply of raw materials and production facilities. India along the following parameters has been made: Andhra Pradesh produces 2.6 million bales of medium and • Availability of factor conditions long staple cotton. It ranks second in the production of • Specific incentives raw silk, fourth in the production of wool and fourth in the An assessment of the key states which appear attractive number of textile mills in India. for this industry, based on these parameters, is given There are around 70 spinning mills in the state with a below. total spindleage of 18.3 million and 9 open-end spinning mills with 5,716 rotors. About 1,050 weaving units with a production capacity of 750 million metres of fabric are Haryana located in the state. It is one of the leading textile processing centers with over 100 units and produces 13 million metres Factor Conditions of cotton cloth per annum The state has good power infrastructure- it is the third largest power utility in the Haryana has a well established textile sector. The state country with a total power generation of 10,273 MW. produces textiles and RMG worth US$ 1 billion. Textiles Andhra Pradesh is amongst the leading states in India that 12 MARKET & OPPORTUNITIES

have made a significant progress in power infrastructure- Specific Incentives generation, transmission and distribution. Fiscal Incentives Specific Incentives • 20 per cent credit- linked subsidy for setting up Fiscal Incentives power-looms • 5 per cent interest subsidy under TUF • 100 per cent reimbursement of stamp duty, transfer duty • Capital subsidy of 10 per cent in processing sector and registration fee on all textile units • Interest subsidy of 3 per cent p.a. to a new unit in the • All textile units are exempt from zoning regulations and textile sector conversion fees • Interest subsidy of 3 per cent p.a. on purchase of capital • Units are exempt from corporate tax in SEZs besides the equipment under TUF tax on exports and imports • Special incentives for textile units on power tariffs, as per the new Industrial Policy Tamil Nadu • Incentive of US$ 110 per worker employed in textile parks Factor conditions

Non-fiscal Incentives Tamil Nadu has the largest cotton textile industry cluster in India which contributes to 39 per cent of the total production • Encourages spinning mills with a capacity > 12,000 units in the country. The country’s largest textile cluster, Tirupur, is • By 2008, all major textile and apparel houses will be also situated in Tamil Nadu. This cluster accounts for 90 per permitted to produce captive power by utilisation of cent of the country’s cotton knitwear exports. The exports natural gas of the Tiripur cluster for the current fiscal year is US$ 900 • Textile parks of area greater than 25 acres inside the city million The state is emerging as a global sourcing hub for and greater than 5 acres outside the city will be under ready-made garments and hosts many global brands. urban land ceiling related exemptions Specific Incentives

Gujarat Fiscal Incentives

Factor Conditions The state offers tailor made packages for investment over US$ 62 million in fixed assets. It offers exemption on Entry The textile sector contributes 23 per cent to the Gross State Tax and Sales Tax on imports of manufacturing units. Domestic Product (GSDP) of the state. It contributes 12 per There are capital subsidies and exemption in Electricity cent to the total textile exports of the country. Gujarat also Tax to companies investing in fixed assets. Subsidies for produces 40 per cent of the country’s art silk fabric. new industrial units located in government industrial parks The state has a well developed textile machine industry have been increased to 150 per cent. and also various institutes for textile product design and development, like the National Institute of Fashion Non-fiscal Incentives Technology (NIFT). • Incentives for patent registration through a one-time reimbursement for the process • Encourages establishment of textile parks • Offers many weaver’s promotional incentives. E.g. Prizes for best design, setting-up of marketing associations for Weaver’s cooperative Societies TEXTILES AND APPAREL 13

Kerala

Factor Conditions

Spinning is the single largest industry in Kerala- hand looms contribute to 10 per cent of the total exports. Cotton yarn is the most popular textile product, followed by knitted garments and fabrics. The textile-processing complex at Kanjikode, the International Apparel Park at Thiruvananthapuram and the Industrial Export Park at Kochi, offer walk-in-and- manufacture environments.

Specific Incentives

Fiscal Incentives

Some of the key fiscal incentives offered by the Government of Kerala, for the textiles sector include:

• Textile units eligible for a state investment subsidy of 15 per cent of fixed capital investment, up to a maximum of US$ 30,000 • All investments exceeding US$ 11 million in this sector will be offered customised incentives except for tax-based incentives • All textile units set up in industrial parks will be exempt from stamp duties and registration fees • The Government provides grants for quality certifications from recognised institutes up to 50 per cent of the expenditure on obtaining the certification subject to a maximum of US$ 4,500

Non-fiscal Incentives

The state is introducing power-looms in a phased manner and offers customised incentives for conversion to power- looms. It also offers trainings to new workers in the hand loom weaving segments. 14 MARKET & OPPORTUNITIES

Conclusion and Key Take-aways

India’s textile industry is an attractive sector that is poised Global Overview of Zieglertex for growth post the Multi-fibre Agreement (MFA) regime. The industry enjoys significant strengths and advantages, Zieglertex, a Swiss textile company of international repute, such as, availability of raw materials, labour, domestic is represented in India by Cheslind Textiles, which is market and supportive government policies. involved in the manufacture of cotton yarn (accounting for The industry is also undergoing transformation, over 90 per cent of its revenue). Zieglertex has a technical with an increasing number of MNCs establishing their and marketing tie-up with Cheslind, which entered in presence to leverage India’s potential. While the structure is the year 1994 and later also invested a small stake in characterised by small scale powered unorganised players, the company. attractive government policies and increasing commitment Currently, Zieglertex also has a 2.09 per cent stake of players across the value chain has led to the growth of in Cheslind. The current activities of Zieglertex include vertically-integrated, large-scale units as well. customised apparel and home textiles, as well as Many states in India in a move to tap their potential development and distribution of its own brand of products. have designed specific incentives for the textile sector. It also sells and distributes raw materials and semi-finished Many MNC’s have taken advantage of these opportunities products, i.e. yarns and fabrics. and have succeeded immensely. Efficient supply chains, superior technology and Zieglertex in India customer centricity and the ability to leverage the Government incentives are the key success factors for the Zieglertex is represented in India by Cheslind Textiles growth of MNCs in this sector. Limited, which has a state-of-the-art manufacturing facility at Bagalur in Hosur Taluk of Tamil Nadu. This facility is a 100 per cent Export Oriented Unit (EOU).The company Case Studies of MNCs in India is headquartered in Bangalore (Karnataka). Cheslind operates 64,000 spindles and its production amounts Zieglertex-Cheslind Textile Limited to approximately 5,500 tonnes of cotton yarn, per year. The main export markets of Cheslind for cotton yarn are Zieglertex, a leading textile company in Switzerland, is Switzerland, Austria, Italy, France, Japan, Korea, Turkey, involved in the business of apparel and home textiles, as Mauritius and Hong Kong. well as yarns and fabrics For every phase of the manufacturing process, Cheslind has technical tie-up with several foreign players. Cheslind

Indian Partner Mode of Presence Year Business Focus Cheslind Textiles Technical and marketing tie-up 1994 (Entry) Customised apparel and home textiles Now a 2.09 per cent Garmenting, weaving and processing 2007 Selling and distribution of raw materials equity stake in Cheslind and manufacture and distribution of semi-furnished products TEXTILES AND APPAREL 15

is implementing Total Quality Management and has Significant care is taken to cater to the individual markets been accredited with ISO 9002 by Bureau Veritas Quality and introduce styles that will suit the requirements of International (BVQI). It also has quality certification from these markets, but a large percentage of the collection is TESTEX, Zurich, for adherence to Öko-Tex standard 100 for core and uniform across the global markets. Once the final exports to Switzerland and other European countries. collection is ready, Benetton franchisees from across the Besides yarn, Cheslind offers a wide range of knitted world assemble in Italy and pick up the products for their fabrics (both grey and processed), made from its yarns respective countries. They place their purchase orders with produced in-house. Fabrics are exported to top end the parent company, which then ships the manufactured customers in Italy, Germany and Japan. lines to the respective countries as per their orders. The company’s turnover in 2005-06 amounted to Benetton’s key brands are United Colors of Benetton roughly US$ 28 million, as against US$ 30.4 million during (UCB) for casual wear and Sisley for fashion wear. Two other the year 2004-05. Despite a marginal decrease in the brands, Playlife and Killer Loop, are positioned as leisure turnover, the profitability of the company has shown wear and street wear brands, respectively. UCB is the largest substantial improvement. The cash profit during 2005-06 contributor to Benetton’s sales, having a share of roughly amounted to US$ 3.07 million as against US$ 1.83 million in 74 per cent of the total sales, followed by Sisley at 19 per the previous year. A public limited company, Cheslind has cent. Playlife and Killer Loop are comparatively low in terms roughly 22,000 shareholders and is listed on all major stock of contribution, and constitute approximately 2 per cent exchanges of India. India’s premier financial institutes like of the sales, with the rest 5 per cent coming from other the IFCI, IDBI, ICICI, State Bank of India and Canara Bank are brands. The company’s promoters, the Benetton family, backing this venture. continue to have the largest stake in Benetton (about 67 per cent) through Edizione Holding, its investment holding company. Benetton’s Chairman, Luciano Benetton and Benetton Deputy Chairman, Alessandro Benetton, both belong to the promoter family. As of December 2005, Benetton had sales Benetton, one of the largest clothing manufacturers in Italy, of Euro 1.90 billion and a net profit of Euro 96.6 million. It has a global presence across 120 countries and more than has almost 8,000 employees globally. It is listed on the stock 5,000 stores. exchanges in Milan, Frankfurt and New York.

Global overview of Benetton Benetton in India

Benetton’s clothing, primarily casual knitwear and Benetton entered the Indian market in 1991-92, as a 50:50 sportswear for men, women, and children, is retailed joint venture with the DCM Group in Delhi, and launched through franchised stores, department stores and mega its flagship label UCB. On 22nd December 2004, Benetton stores. Other products include sunglasses, watches and became a wholly owned subsidiary of the Benetton Group, shoes. Though the development of its stylish collection is Italy. UCB is today a leading brand in India with more than done in Europe, the company’s designers travel around the 106 stores across 45 cities in the country. The retail network world collecting ideas and putting them together, in order is a mix of owned and franchised stores. Many of these are to create a collection that is acceptable to all the markets. mega stores, with size more than 4,500 square feet with an The collection is a result of inputs on fabrics and styles from increased focus on apparel for men, women and kids. The different designers, which results in one main collection. company is also looking at expanding the brand in the

Indian Partner Mode of Presence Year Business Focus DCM Group 50-50 JV with DCM 1991-92(Entry) Launch of flagship brand UCB for men and women Now a 100 per cent subsidiary of the More than 106 stores in 45 cities- 2007 Mega-store retail chain with presence in Benetton group manufacturing, sourcing, garmenting, garmenting and sourcing across the value as well retailing catering to all segments of the market 16 MARKET & OPPORTUNITIES

Asia Pacific region and has recently opened stores in Male, of the world, 120 million metres of denim rolls out every Karachi and Kathmandu. year from Arvind’s plants and is stitched into leading With the Indian market increasing in strategic international denim brands in more than 70 countries. importance for the Benetton Group at the global level, its The company is also in the garment and men’s shirting fashion label Sisley was launched in India in 2006.The first business under the brand names such as Newport, Flying outlet, nearly 3,500 square feet in size, was opened in Delhi Machine, Lee, Arrow. Besides textiles, the company also has and features a collection for men and women. Benetton EPBAX unit. India has a manufacturing unit in Gurgaon (Haryana). Almost 50 per cent of the garments required for Indian stores are Raymond Ltd. manufactured here. The remaining sourcing for the Indian market happens through contract manufacturing from US$ million 2006-07 2005-06 Ludhiana (Punjab), Delhi, Bangalore (Karnataka), Chennai Revenue 30.01 31.55 (Tamil Nadu), Nepal and Benetton International. The Net Profit/Loss 4.47 2.74 designs are selected from the global collection, created by the product design and development team based in Italy. India is also used as a market for Benetton Group’s global Incorporated in 1925, the Raymond Group is a sourcing especially for kids’ apparel. In India, the company US$ 310.35 million plus conglomerate having businesses employs more than 300 people directly and provides in textiles, readymade garments, engineering files & tools, indirect employment to over 5,000 people. prophylactics and toiletries. This group is the leader in textiles, apparel and files & tools in India and enjoys a Other MNCs that have entered India pronounced position in the international market. Raymond

Company Indian Partner Mode of Presence Year Business Focus Levi Strauss & Co. Wholly owned subsidiary Designing and marketing 2003 Has launched close to 200 outlets of the parent brands and plans to enter Tier 2 cities as well its ‘Signature’ label Carreman Michel Thierry Group Banswara Syntex Ltd. Joint venture in a weaving 2006 Target US, UK and European markets plant in Rajasthan with Lycra based fabrics

VF Corporation The Arvind Mills Ltd. Designing, sourcing and 2003 Lee and Wrangler brands have been marketing of VF’s licensed very successful. The company plans brands to add three more labels

Profiles of Key Players and Textile produces pure wool, wool blended & polyester Industry Contacts viscose fabrics and blankets along with furnishing fabrics. The denim division produces high quality ring denims. The Arvind Mills Ltd. Raymond believes in excellence, quality and leadership.

The Arvind Mills Limited is the flagship company of Alok Industries Ltd. US$ 550 million of the Lalbhai Group. It is engaged in the production of the widest range of textiles. It is the Established in 1986 as a private limited company, Alok world’s largest exporter of denim and Asia’s largest denim began with texturising of yarn and the company steadily producer. Ranking amongst the top denim manufacturers expanded into weaving, knitting, processing, home textiles

US$ million 2006-07 2005-06 US$ million 2006-07 2005-06 Revenue 41 36 Revenue 6.96 5.54

Net Profit/Loss 2.7 2.87 Net Profit/Loss 0.44 0.33 TEXTILES AND APPAREL 17

and readymade garments. In 1993, it became a public Century Textiles & Industries Ltd. limited company. In less than two decades, it has grown to become a diversified manufacturer of world-class home Century Textiles & Industries was incorporated in 1897. Till textiles, apparel fabrics and polyester yarns, selling directly 1951, it had only one industrial unit, the cotton textile mill. to manufacturers, importers, exporters and retailers. It operates Asia’s largest composite mill dedicated to cotton textiles. Now, century has diversified into other businesses Vardhman Spinning & General Mills Ltd. as well. Century is not only the trend setter in cotton textiles, but also built a presence in yarn, denim, viscose filament The Vardhman Group, established in 1965, under the yarn, tyrecords, caustic soda, sulphuric acid, salt, entrepreneurship of Late Lala Chand Oswal has cement and pulp & paper. today blossomed into one of the largest textile business houses in India. At its inception, Vardhman had an US$ million 2006-07 2005-06 Revenue 14.69 13.3

US$ million 2005-06 2004-05 Net Profit/Loss 0.53 0.36 Revenue 41.87 40.87

Net Profit/Loss 5.56 3.62 Welspun India installed capacity of 14,000 spindles. Today, its capacity has Beginning with a small texturising unit in 1985, the increased multifold to over 5.5 lakh spindles. At present, Welspun group has significantly expanded and diversified Vardhman Threads is the second largest producer of sewing its business. It now has interests in terry towels, LSAW pipes, thread in India. The grey fabric weaving unit at Baddi (HP), pipe coating, cotton yarns, PFY, bathrobes and buttons. commissioned in 1990 with a capacity of 20,000 metres per The Group’s annual turnover exceeded US$ 443.36 million, day, has already made its mark as a quality producer of grey of which more than US$ 254.93 million was from exports. poplin/sheeting/shirting in the domestic, as well as foreign It has ties with 12 out of the top 20 retailers in the world, market. This was followed by entry into fabric processing namely Wal-mart, K-mart, JC Penny and Target to name a by setting up Auro Textiles at Baddi, which currently has a few. LSAW pipe clientele includes names, such as, Shell, processing, capacity of 1 lakh metres/day. Gazprom, ExxonMobil, etc.

Indian Rayon and Industries Ltd. (IRIL) US$ million 2006-07 2005-06 Revenue 14.47 22

IRIL is the Aditya Birla group’s most diversified conglomerate. Net Profit/Loss 9.19 11.79 It is the second largest producer of viscose filament yarn in India and also the largest branded apparel company in Himatsingka Seide Ltd. India. It is a diversified company and operates a wide range of businesses. The focus areas are viscose filament yarn, The company commenced its operations on February 15, carbon black, branded apparel, textiles and insulators. 1985 and was promoted by Ajay Kumar Himatsingka and Indian Rayon has also made forays into insurance, software Dinesh Kumar Himatsingka. It manufactures natural silk and Business Process Outsourcing (BPO). fabrics under a 100 per cent export oriented unit scheme. The company undertook to set up a composite silk mill, with an annual capacity of 7,50,000 square metres for producing natural silk fabrics.

US$ million 2006-07 2005-06 US$ million 2006-07 2005-06 Revenue 76.81 60.32 Revenue 3.65 3.25

Net Profit/Loss 4.98 4.23 Net Profit/Loss 1.06 1.04 18 MARKET & OPPORTUNITIES

It produces a wide range of regular and fancy 100 per cent silk and silk blended yarns. Its weaving division, Himatsingka Seide, offers yarn dyed decorative, bridal and fashion fabrics. The entire operation of winding, doubling, twisting, dyeing, weaving and finishing is integrated under one roof.

Bombay Dyeing

Bombay Dyeing is one of India’s largest producers of textiles. The company is one of the largest and oldest textile companies in the country and manufactures cotton and blended textiles. The product mix comprises of the suitings, shirtings, sarees, towels and bed . It manufactures Vivaldi brand of men’s clothing is also is a manufacturer of DMT. The company was formed on 23 August, 1879 by Nowrosjee Wadia, at Mahim, Bombay and was the first mill to start dyeing of yarn in India. Textile Mfg. Co. Ltd. was set up in 1895. Nowrosjee Wadia & Sons became the managing agents in 1898. TEXTILES AND APPAREL 19

Exchange Rate Used

Year Exchange Rate (INR/US$) 2000-01 45.75 2001-02 47.73 2002-03 48.42 2003-04 45.95 2004-05 44.87 2005-06 44.09 2006-07 45.11

Disclaimer

This publication has been prepared for the India Brand Equity Foundation (“IBEF”).

All rights reserved. All copyright in this publication and related works is owned by IBEF. The same may not be reproduced, wholly or in part in any material form (including photocopying or storing it in any medium by electronic means and whether or not transiently or incidentally to some other use of this publication), modified or in any manner communicated to any third party except with the written approval of IBEF.

This publication is for information purposes only. While due care has been taken during the compilation of this publication to ensure that the information is accurate to the best of IBEF’s knowledge and belief, the content is not to be construed in any manner whatsoever as a substitute for professional advice.

IBEF neither recommends nor endorses any specified products or services that may have been mentioned in this publication and nor does it assume any liability or responsibility for the outcome of decisions taken as a result of any reliance placed on this publication.

IBEF shall, in no way, be liable for any direct or indirect damages that may arise due to any act or omission on the part of the user due to any reliance placed or guidance taken from any portion of this publication. 20 MARKET & OPPORTUNITIES

India Brand Equity Foundation (IBEF) is a public-private partnership between the Ministry of Commerce & Industry, Government of India and the Confederation of Indian Industry. It aims to effectively present the India business perspective and leverage business partnerships in a globalising market-place.

India Brand Equity Foundation c/o Confederation of Indian Industry 249-F Sector 18, Udyog Vihar Phase IV Gurgaon 122015, Haryana, INDIA

Tel: +91 124 401 4087, 4060 - 67 Fax: +91 124 401 3873, 401 4057 Email: [email protected] Web: www.ibef.org Website in the Russian language: www.ibef.org/russia